Huntsville Utilities v. CONSOLIDATED CONST.

• Decision Date: 05 September 2003
• Citation: 876 So.2d 450
• Parties: HUNTSVILLE UTILITIES et al. v. CONSOLIDATED CONSTRUCTION COMPANY.
• Court: Alabama Supreme Court

876 So.2d 450

HUNTSVILLE UTILITIES et al. v. CONSOLIDATED CONSTRUCTION COMPANY.

1020195.

Supreme Court of Alabama.

September 5, 2003.

E. Cutter Hughes, H. Harold Stephens, and Daniel Kaufmann of Bradley Arant Rose & White, LLP, Huntsville, for appellants.

L. Graves Stiff III and Brian A. Dodd of Starnes & Atchison, LLP, Birmingham, for appellee.

On Application for Rehearing

STUART, Justice.

The opinion of May 23, 2003, is withdrawn and the following is substituted therefor.

Huntsville Utilities, John Thomas, and Jimmy Stanley appeal from the denial of their motion to compel Consolidated Construction Company ("CCC") to arbitrate its claims against them. We reverse and remand.

Facts

On October 19, 1999, CCC and Huntsville Utilities entered into an agreement entitled "Standard Form of Agreement Between Owner and Contractor where the basis of payment is a Stipulated Sum."¹ Pursuant to that agreement, CCC was to serve as the general contractor for renovations totaling $7,722,200 to the offices of Huntsville Utilities. Subparagraph 4.6.1 of that agreement provided:

"4.6.1. Any claim arising out of or related to the Contract, except to aesthetic effect and except those waived as provided for in Subparagraphs 4.3.10, 9.10.4 and 9.10.5, shall, after decision by the Architect or 30 days after submission of the Claim to the Architect, be subject to arbitration. Prior to arbitration, the parties shall endeavor to resolve disputes by mediation in accordance with the provisions of Paragraph 4.5."

Huntsville Utilities had hired J.H. Partners Architecture and Interiors, P.C. ("J.H. Partners"), as the architect for the renovations; J.H. Partners drafted the plans and specifications for the renovation project. David Ely of J.H. Partners was named as the architect of record; Barry Broom, also an employee of J.H. Partners, was responsible for contract administration on the renovation project.

CCC, a corporation organized under the laws of Delaware, subcontracted the roofing work to Andrew W. Tjelmeland d/b/a Stahl Sheet Metal ("Stahl"), a Tennessee sole proprietorship doing business in Alabama. Stahl subcontracted the roofing work to Phil Morgan Roofing Company, an Alabama sole proprietorship.² CCC also hired a Florida firm, Conway Enterprises ("Conway"), to perform waterproofing at the project site. According to the record, all other subcontractors retained by CCC were based in Alabama.

According to CCC, it encountered substantial construction problems, design errors, and poor site conditions, all of which required CCC to perform substantial additional work and for which CCC says it is entitled to additional compensation. According to CCC, those problems — the design and specification errors and the site conditions — also delayed completion of the project. CCC contended that J.H. Partners failed to respond to requests for information, refused to work with CCC, interfered with CCC's performance of its contract, and otherwise performed in an unprofessional manner.

In November 2001, CCC sued J.H. Partners, Jones & Herrin Architect/Interior Design,³ David Ely, and Barry Broom in the Madison Circuit Court, alleging professional negligence and breach of contract. In January 2002, CCC amended its complaint to add as defendants Stahl (the original roofing subcontractor); Stahl's insurer, Bituminous Casualty Corporation ("BCC"); and Phil Morgan Roofing Company (Stahl's Alabama sub-subcontractor). Stahl is a Tennessee resident who was doing business in Alabama. BCC is a corporation organized under the laws of Illinois with its principal place of business in Illinois. Phil Morgan is an Alabama resident. Against Stahl and Phil Morgan Roofing Company, CCC alleged negligence and breach of express warranties. Against BCC, CCC alleged breach of an insurance contract.⁴

In May 2002, CCC added Huntsville Utilities and two of its employees, John Thomas and Jimmy Stanley, as defendants (hereinafter referred to collectively as "the Huntsville Utilities defendants"). Against Huntsville Utilities, CCC asserted claims alleging breach of the construction contract, breach of warranty, and vicarious liability for the architect's negligence pursuant to a theory of respondeat superior. CCC also alleged unjustified and unexcused interference by Thomas and Stanley, as employees and agents of Huntsville Utilities, with CCC's contractual performance. A few months later, the claims asserted against all of the out-of-state defendants were settled or dismissed with prejudice.

On June 19, 2002, the Huntsville Utilities defendants filed a motion to dismiss, to compel arbitration, and/or for sanctions (hereinafter referred to as the "motion to compel arbitration"), relying upon the arbitration provision contained in the agreement between Huntsville Utilities and CCC.

On July 29, 2002, CCC filed another complaint. In that complaint, CCC clarified its allegations against J.H. Partners, Huntsville Utilities, Thomas, and Stanley. That complaint alleged negligence, breach of warranty, fraud, suppression, defamation, and tortious interference with CCC's contractual relationship with Huntsville Utilities and with CCC's subcontracts. On August 14, 2002, CCC again amended its complaint to allege that Huntsville Utilities had violated § 8-29-1, Ala.Code 1975, known as Alabama's Prompt Pay Act.

On September 6, 2002, the Huntsville Utilities defendants filed the affidavits of Thomas and Stanley and various invoices from out-of-state suppliers in support of their motion to compel arbitration. On October 1, 2002, the trial court denied the motion to compel arbitration, relying upon the five factors adopted by this Court in Sisters of the Visitation v. Cochran Plastering Co., 775 So.2d 759 (Ala.2000).

The Huntsville Utilities defendants appeal from the denial of their motion to compel arbitration, raising the following issues:

"A. Whether this Court [in Sisters of the Visitation] impermissibly limited the United States Supreme Court's broad interpretation of Section 2 of the Federal Arbitration Act by applying the [United States v.] Lopez [, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995),] `substantial effects' standard to individual transactions involving interstate commerce?

"B. Whether the circuit court erred in holding that a renovation project involving a contractor incorporated in Delaware, three out-of-state subcontractors, two out-of-state insurers, and the purchase and shipment of materials from twenty different states did not substantially affect interstate commerce?"

Standard of Review

This Court's review of an order granting or denying a motion to compel arbitration is de novo. First American Title Ins. Corp. v. Silvernell, 744 So.2d 883, 886 (Ala.1999); Crimson Indus., Inc. v. Kirkland, 736 So.2d 597, 600 (Ala.1999); Patrick Home Ctr., Inc. v. Karr, 730 So.2d 1171 (Ala.1999).

Discussion

"A. Whether this Court [in Sisters of the Visitation] impermissibly limited the United States Supreme Court's broad interpretation of Section 2 of the Federal Arbitration Act by applying the [United States v.] Lopez [, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995),] `substantial effects' standard to individual transactions involving interstate commerce?"

The Huntsville Utilities defendants first challenge the denial of their motion to compel arbitration by arguing that the "substantial-effect-on-interstate-commerce" standard, applied by the trial court and adopted by this Court in Sisters of the Visitation, supra, violates binding federal precedent. The Huntsville Utilities defendants argue that the standard previously applied by this Court to trigger application of § 2 of the Federal Arbitration Act ("the FAA") places an impermissibly high burden on parties seeking to enforce arbitration agreements.

In light of the recent ruling from the United States Supreme Court, we must agree. Since 2000, this Court has applied the five-factor test adopted in Sisters of the Visitation to determine whether a transaction substantially affected interstate commerce so as to trigger the application of the FAA. Since the adoption of that test, we have reviewed individual transactions in light of the following factors to determine whether interstate commerce was substantially affected as a result of the transaction: (1) whether the citizenship of the parties or the place for the performance of the contract established a substantial effect on interstate commerce; (2) where the tools and equipment used in connection with the transaction originated and whether they moved in interstate commerce; (3) whether the allocation of the cost of the services and materials required for the particular project established a substantial effect on interstate commerce; (4) whether the object of the contract was capable of subsequently moving across state lines and was therefore capable of having a subsequent impact on interstate commerce; and (5) the degree of separability between this transaction and other transactions or contracts that might substantially affect interstate commerce.

However, in Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003), the United States Supreme Court reversed our judgment in Alafabco, Inc. v. Citizens Bank, 872 So.2d 798 (Ala.2002), and recognized that the "substantial effect" test adopted in Sisters of the Visitation"gave inadequate breadth" to the language of the FAA. The United States Supreme Court stated:

"We have interpreted the term `involving commerce' in the FAA as the functional equivalent of the more familiar term `affecting commerce' — `words of art that ordinarily signal the broadest permissible exercise of Congress' Commerce Clause power. Allied-Bruce Terminix Cos. [v. Dobson], 513 U.S., [265] at 273-274, 115 S.Ct. 834 [(1995)]. Because the statute provides for the `enforcement of arbitration agreements within the full reach of the Commerce Clause,' Perry v. Thomas, 482 U.S.

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